Something is ‘Off’ in the State of Denmark

Wilson and Hessen wrote a very interesting and thought-provoking article. I am substantially in agreement with the conceptual framework, based on cultural multilevel selection theory, that they employ to make sense of the Nordic model, as well as their consideration of how to improve cooperation on the global scale. Although their emphasis is on the latter, “Organizing the Global Village,” I’d like to focus on the question of how sustainable the Nordic model itself is in the face of globalization.

I will use the case of Denmark, with which I am most familiar, having recently lived there while visiting at Aarhus University. Judging by both subjective impressions and objective data from cross-national comparisons, Denmark is a remarkably cooperative society that delivers a very high standard of living to the overwhelming majority of its members. Yet there are worrying signs.

One of them is that economic inequality has been increasing in Denmark. The difference between the better-off and the worse-off in Denmark is nowhere near the gulf we see in truly unequal societies, such as many Latin American countries, or even the United States. It has been increasing nonetheless. This is important because both theoretical models and empirical studies show that increasing inequality corrodes the ability of human groups and whole societies to cooperate.

Why has inequality been increasing in Denmark? There is no universally accepted answer to this question for any country, but most often the finger is pointed at “globalization.” Globalization has many different aspects, including immigration flows, movement of jobs to countries with cheaper labor, and movement of companies to countries which constitute tax shelters, such as Luxembourg.

One underappreciated aspect of globalization is the global spread of ideas, or “globalization of ideology.” Although we tend to think of ideas as “good,” current trends in the global ideological landscape have some troubling implications for the Nordic model and its emphasis on equality and cooperation.

The collapse of the Soviet Union and the adoption of the capitalist model of development in China has seemingly validated the idea that prosperity is best attained by letting free markets rule, while limiting, or even completely eliminating, the role of government in regulating economy. Untrammeled competition is thought to be an unalloyed good. Any increases in inequality resulting from some members of the society failing to benefit from the fruits of economic growth, are treated as an unimportant side-effect. In more extreme versions of this ideology, the rich are deserving of their riches – by virtue, perhaps, of their hard work or great talent (and the poor, by implication, are deserving of being poor).

Historically, ideas about the importance of competition versus cooperation have changed in a cyclical manner. Around 1900, during the heyday of Social Darwinism, economic inequality in the United States (and such European countries as the United Kingdom and France, shown by Thomas Piketty and colleagues) was at a peak. Then, during the middle of the twentieth century, inequality decreased. From the New Deal until the Great Society (the 1930s to 1960s), the United States experienced a remarkable period of social cooperation between the economic elites (corporate managers), workers, and the state. In fact, during this period, the United States approached quite closely the Nordic model. But during the 1970s, the ideological consensus that underlied this cooperative model unraveled. A harsher ideology extolling individualism and competition gained ground. During the last three decades in the United States we have seen a simultaneous increase in economic inequality and decrease in social cooperation between employers and employees, between the state and society, and within the political elites.

The trend reversal of the 1970s in the U.S. indicates that we cannot assume that the trend to greater social cooperation, which has characterized the Nordic countries until quite recently, will necessarily be sustained. In fact, there are reasons to believe that ideologies extolling individualism, competition, untrammeled free markets, and, conversely, disparaging cooperation and equality, are diffusing from the United States and other Anglo-Saxons countries (remember Margaret Thatcher’s famous dictum that there is no society) to the rest of Europe, including the Nordic countries.

One possible example of such ideological diffusion is the sale of a stake in Dong Energy by the Danish government to the American investment bank Goldman-Sachs last winter (2013-14). There were many troubling aspects of this deal. It was prepared in great secrecy without any public discussion and implemented rapidly. The great majority of the Danish public was against the deal because the Danes would prefer that Dong was owned by Danish investors. In fact, a coalition of Danish pension funds offered to match the price offered by Goldman-Sachs for the shares, but this offer was summarily rejected by the government.

Goldman-Sachs has a rather unsavory reputation. Many have questioned its role in the financial crisis of 2007-8, or its alleged help to the Greek government to massage its financial figures. One particular worry is that the deal will result in a diminution of taxes that Dong pays in Denmark, because Goldman-Sachs is using Luxembourg, Delaware, and Cayman Islands-based tax haven affiliates to manage its investment in Dong. Nearly a quarter of the coalitional cabinet walked out – all six Socialist People’s Party members. Parliament, dominated by the supposedly center-left Social Democrats, nevertheless ignored the public outcry and the loss of a coalition partner, pushing ahead with the deal.

There are many things that seem to be “off” about this deal. Government officials were unable to explain why the sale was needed, apart from platitudes about economic efficiency, cutting costs, and bolstering investments. They rejected the Danish pensions’ bid to buy the Goldman-Sachs share. It almost seemed that they wanted to sell to Goldman-Sachs because that’s just what a forward-looking government should do. In this, they were behaving much more like center-right parties of other countries.

We don’t know whether the Dong incident represents a single happenstance or a new trend, and we don’t know why the Danish government was so eager to push the deal through, despite significant reputational losses. But one possible explanation is the one I mentioned above—the diffusion of free-marketeer ideology, which has now made substantial inroads into the Danish political elites. If this is correct, then the future of the Nordic model in Denmark becomes very uncertain.